Is it profitable to convert a Single Family home into a Duplex?

Question

Good day BPers!

I just got a call from a potential seller who wants to sell a home he owns that he is converting into a duplex. Specs are as follows:

-1,876 sqft (we'll say split equally between both units)
-4 bed 2bath total (2 bed 1 bath upper and lower unit)
- 3/4 acre lot
-24'x24' pole barn on property (possible 2 car garage)
-Partially rehabbed at this time - incomplete kitchen in one of the units, needs new carpets and such.

He is looking to sell after he is done in a few months but is willing to sell "for the right price" in the middle of his rehab. (Tire kicking...)

The specific area the property is in is a little more country-ish so not too many duplexes around.

According to several online sites like zillow, trulia, realtor.com, homes.com, etc. the average price of the home, in its Single Family state, is between 55k-90k but he's asking for 180k-190k after he's done or 150k-160k with rehab work still to be done. I know most online sites are usually wrong with their estimates/comps but in this case they arent that far off for the area.

My questions are as follows: Does adding a second unit to a SF add that much value? I know it largely depends on the market but in terms of Duplexes is he right to ask that much in difference? How would I comp it out, as a SF or as a Duplex/Multifam? Should I bother calling him back? LOL!

Thanks in advance!

P.S. I dug around a little and found he only paid $40,900 for the property. Not sure if that should matter but I find it to be a flag, not a RED flag but maybe a YELLOW flag lol.

Dan Martz · Answer

Hi Daniel,

Working in reverse order:

What he paid is irrelevant; what matters is the market value...

Why pay 150+ when it sounds like you could buy two homes in the area for the same price (and no worries about guessing on utilities) etc....

My own personal opinion is that for a rural area the duplex makes no sense to me...He is taking away value by converting because you don't see a lot of retail buyers purchasing a duplex and I'd be buying a duplex for the rental income (which doesn't seem like it would be high enough to command that asking price in a rural setting)

Daniel Hornsby · Answer

Thanks for everyone's replies. You are all reinforcing what I was thinking.

Zachary Dosch you made a very good point about code requirements for conversions. I would not have thought of that.

Thank you all!

Suzie B. · Answer

I too think it sounds like he is asking too much. In our area, it is sometimes difficult to get a loan for a duplex because there are very seldom any comparables. It sounds like that could be a possibility for this property.

I would assume he thinks he's doing the right thing in converting the home into a duplex, but he may well be hurting himself. He will have to find the right buyer which might take him more time and money in carrying costs than he expects.

If you can buy 2 SFH's in the area for less than what you would have invested here... I would lean toward that. They are easier to sell in the long term if you would need to cash out, and generally a little easier to rent as well.

There are times when a duplex can cost you less in repairs than 2 SFH's... for example, the one we own has one roof over the 2 units (up and down units), and 1 furnace. Because of the single furnace though, we are forced to pay the gas bill :(

Zachary Dosch · Answer

I've kicked this idea around with some of my single family rentals.

I think it largely depends if there is a big disparity in what the two new units would rent for together compared to what the house would rent for by itself.

I have one house in particular that is perfect for conversion but the two units together might only gross $100 more than the house would rent for as a single unit. If it costs $15-20k for the remodel, that would be a terrible return on investment.

How much does adding a standard kitchen in a basement usually run? It can be done for $15k fairly easily right?

Also, I would be talking with the city on different zoning requirements and the additional requirements that a duplex has to meet compared to a single family home (egress windows, firewalls, ect.)

Kelly N. · Answer

Hi Daniel,

There is no way I'd pay twice the current SF home price for a duplex like this. Like Dan said, I'd just go out and buy two SF.

He's either asking way too much or putting too much $$ into it. What would it rent for? That will determine the price more than anything else.

Kelly

Sam W. · Answer

In my experience, converted duplexes should not sell for 2x the price of a single family house. In fact, in my area average SFHs sell for about $80-100 sq / ft. while a converted duplex sells for between $30-$50 sq/ft. Duplexes/Twin-plexes that started life as a multi-family sell for a bit more.

Based on what you've written, I'd estimate the seller is asking about 40% too much.

As an aside, from personal experience, a big lot (3/4 acre in this case) is not a good thing when dealing with multi-family homes.

Is it profitable to convert a Single Family home into a Duplex?

Is it profitable to convert a Single Family home into a Duplex?

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